1. Trade Balance by Alan V. Deardorff University of Michigan 2018
PubPol/Econ 541
Trade Balance by Alan V. Deardorff University of Michigan 2018

2. Trade Balance Dollar Index Broad.xlsx
Trade Balance

3. Trade Balance Dollar Index Broad.xlsx
Trade Balance

4. What Does the Trade Balance Mean?
From National Income Accounting
(I’ll do this first without government)
Recall
GDP = Output = Income = Y
Output:
Y = C + I + (X − M)
Income:
Y = C + S
Therefore
X − M = S − I
Where
C = Consumption
I = Investment
X = Exports
M = Imports
S = Savings
Trade Balance

5. What Does the Trade Balance Mean?
From National Income Accounting
(Now with government)
Even more simply
Y = C + I + G + (X − M)
implies
X − M = Y − (C + I + G)
Trade Balance

6. What Does the Trade Balance Mean?
From National Income Accounting
(X − M) = Y − (C + I + G)
So a trade deficit
(X − M) < 0
means that we are spending
(C + I + G)
more than our income Y
Trade Surplus
Income
Expenditure
Trade Balance

7. What Does the Trade Balance Mean?
From National Income Accounting
Thus, since X − M = S − I
Trade surplus  savings > investment
Trade deficit  savings < investment
If we are not saving enough to finance investment, how do we pay for it?
By borrowing from abroad, or
By selling assets
Trade Balance

8. International Transactions: Data
US Export and Import Shares Since 1962
(Shaded strips are recessions)
National Data / Charts
I haven’t been able to find this more recently.
Source: Survey of Current Business February 2013
Trade Balance

9. International Transactions: Data
Grey shaded strips are recessions. Note that deficits tend to:
Rise in booms
Fall in recessions
From OECD via FRED
As of Jan 2018, FRED has this only through 2013.
Trade Balance

10. Implications of the US Trade Deficit
Ratio, Savings to Gross National Income
Who, in the US, is doing this?
Partly it has been the US government, running a deficit due to
Tax cuts
War
Stimulus
Percent
National Data / Charts
But it is also due to falling private saving
Trade Balance

11. International Transactions: Data
From
Survey of
Current
Business
BEA data graphs.xls
Became negative about 1986
Trade Balance